SolarCity factory could grow again if company needs to expand - The Buffalo News

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SolarCity factory could grow again if company needs to expand

The solar panel factory slated for a former brownfield site in South Buffalo already is five times more massive than originally planned.

If the Cuomo administration has its way, the project could get another five times bigger still.

SolarCity, the California solar energy company, will bring 2,900 jobs to a $750 million factory the state is building for the company at the RiverBend industrial site, a project that grew from its initial, 200-megawatt capacity to 1 gigawatt, an amount that can power 750,000 homes.

Now, the state has reached an agreement with SolarCity that gives New York a four-month window to negotiate exclusively a deal to locate a bigger factory – with a capacity of up to 5 gigawatts – at the same site, if the company gets to the point where it needs to expand further, according to a copy of the contract filed Thursday with the Securities and Exchange Commission.

State officials say the agreement giving New York the first chance to win the second, larger production facility shows the long-term potential of the RiverBend project, which is fueled by Gov. Andrew M. Cuomo’s signature economic-development initiative.

“This is the governor’s doing. He wanted to make sure that his investments under the Buffalo Billion are constant and ongoing for the next 10, 15 years,” said Alain E. Kaloyeros, chief executive officer of SUNY Polytechnic Institute and a point person for the state’s high-tech ventures in Buffalo.

But a lot has to go right for Buffalo to win a second, expanded SolarCity facility, and even the original factory now under construction here is not without its risks. SolarCity has no experience in solar panel production and the industry is highly competitive and rapidly evolving.

For SolarCity to absorb the production capacity of its planned Buffalo factory, its installations would need to roughly double from this year’s pace. And to absorb the capacity of an even bigger solar panel factory would require continued growth at a rapid pace in the years beyond that.

“We believe that management may continue struggling to exceed relatively lofty expectations in the coming quarters,” Timothy Radcliff, an analyst with Morgan Stanley, wrote following the release of SolarCity’s third-quarter earnings report Wednesday.

The details on the 1 gigawatt RiverBend project in the amended agreement between SolarCity and the SUNY Research Foundation closely track the public announcement made in September by Cuomo and state officials.

New York originally reached a deal with Silevo, a small manufacturer of solar panels, to operate a 200-megawatt factory and create 475 jobs at the 88-acre RiverBend site. The state was to spend $225 million to build a facility shared by Silevo and the LED manufacturer Soraa.

Silevo’s acquisition in September by the much larger SolarCity opened the door to an expansion of the initial vision for the RiverBend green-energy complex.

Cuomo in September announced the state would spend $750 million to build and outfit the larger solar panel factory, with SolarCity investing $5 billion, which includes salaries.

It would be the largest solar panel factory in the Western Hemisphere. SolarCity’s SEC filing outlines a timeline and offers additional details for the project.

The state agreed to finish construction on the million-square-foot factory within 12 months at the earliest and 18 months at the latest. SolarCity then has another three months to test the installed equipment and at least three more months – but no more than six months – to ramp up to full production at the site, according to the agreement.

SolarCity commits to have 900 workers in place within two years of the completion of the factory. In addition to the full 1,460 employees at RiverBend, SolarCity pledges to create 1,440 jobs at suppliers and service providers in the Buffalo area and another 2,000 employees in the state supporting solar panel sales and installation.

The state will spend no more than $350 million on construction and up to $400 million on equipment for the factory, while SolarCity agrees to spend the $5 billion on operational costs, including the payroll and the costs of material and other operating expenses at the plant.

The agreement also outlines how much money SolarCity must pay back over a decade if the project falters. Once the factory is complete, the company must pay $41 million each year that it doesn’t meet investment and employment targets.

“The building in New York is on schedule and we expect to be producing modules in 2016 and ramp up to full capacity in 2017,” Tanguy Serra, SolarCity’s chief operating officer, said in a conference call with analysts Wednesday to discuss the most recent earnings report.

The Buffalo News in September reported the state’s deal with SolarCity gives New York a four-month window to negotiate on a “first opportunity basis” with the company for any additional solar panel manufacturing capacity the company may build over the next 10 years.

The amended agreement filed with the SEC indicates the expanded, second phase of solar panel manufacturing at RiverBend could boost capacity there by up to 5 gigawatts of electricity production.

The four-month window begins when SolarCity notifies the state it is ready to ramp up its capacity, Kaloyeros said Thursday.

He said he believes Buffalo is well-positioned to capture the second, larger factory because the infrastructure will be in place at the RiverBend site and the company already will have a large work force here.

The second-phase factory could triple the 3,000 direct and indirect jobs SolarCity is creating in Buffalo as part of the project’s first phase, he said.

And it’s not clear whether SolarCity can continue its recent growth spurt. Radcliff, the Morgan Stanley analyst, pointed out “the specter of increasing competition in the coming years.”

As for Soraa, the onetime partner in the RiverBend development that was squeezed out by the SolarCity expansion, the state has not yet found a new home for the maker of LED lights. Kaloyeros said state officials continue to discuss potential local sites for Soraa’s facility and the company remains interested in operating in New York.

“We’ve got to make sure, at the governor’s direction, that the location would both benefit Western New York and enable the company to come to New York and prosper,” he said.


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